Introduction
In our current economic climate, Nigerian businesses are navigating unprecedented challenges. Soaring operational costs and huge drop in revenues are forcing many companies to make difficult decisions to ensure sustainability. One of the most challenging of these decisions is downsizing the workforce, a process legally defined as redundancy.
While workforce reduction may seem like a purely commercial decision, it is a process governed by strict legal requirements. A misstep can expose a company to costly litigation, significant financial penalties, and severe reputational damage. We provide a clear and practical roadmap for employers on how to manage redundancy lawfully, fairly, and humanely, in line with Nigerian law.
The Legal Foundation: Section 20 of the Labour Act
The aspect of the law governing redundancy in Nigeria is Section 20 of the Labour Act. and it defines a “worker” as an individual engaged in manual labour or clerical work. While this definition excludes managerial and executive staff, the principles laid down in Section 20 have been adopted by the National Industrial Court of Nigeria (NICN) as the benchmark for fair labour practice for all employees. Therefore, compliance with these principles is considered best practice generally.
Section 20(1) outlines a mandatory three-step process for employers:
Inform the Union or Worker’s Representative
The employer must inform the trade union or workers’ representative concerned of the reasons for and the extent of the anticipated redundancy. This is not merely a notification; it is the first step in a consultation process. The goal is to engage in a dialogue about the situation.Rather than be constrained by ideas for new products, services and new markets coming from just a few people, a Thinking Corporation can tap into the employees.
Adhere to the "Last-In, First-Out" (LIFO) Principle:
The Act stipulates that the employer must use the principle of “last-in, first-out” in selecting the employees to be laid off. However, this is not an absolute rule. The Act provides a critical caveat: LIFO is “subject to all factors of relative skill, ability and reliability.” This gives employers a degree of discretion. For instance, a highly skilled employee hired more recently can be retained over a less skilled, longer-serving employee. Employers must be prepared to objectively justify any deviation from LIFO based on these factors.
Negotiate Redundancy Payments:
The employer is bound to use its “best endeavours” to negotiate redundancy allowances and payments for any discharged employees. The Labour Act does not prescribe a statutory amount for redundancy pay. The amount is subject to negotiation between the employer and the employee (or their representative). The outcome of this negotiation often depends on the company’s policy, any existing Collective Bargaining Agreement (CBA), the employee’s contract, or simply what is agreed upon in good faith at the time.
Beyond the Labour Act: Best Practices for All Employees
For employees who are not “workers” under the Labour Act (e.g., management and senior staff), their employment is primarily governed by their contracts of employment and the company’s policies (e.g., employee handbook).
However, the NICN, which has exclusive jurisdiction over employment matters, has consistently held that it will not permit employers to terminate employment for any reason if that reason is, in substance, redundancy, without following a fair procedure. The Court typically views the principles in Section 20 as the minimum standard for fairness.
Therefore, for all employees, our recommended best practice is:
- Have Clear, Objective Criteria: Document the business case for the redundancy and the selection criteria used.
- Consult and Communicate: Engage in individual consultations with affected employees. Explain the situation, the selection process, and the proposed redundancy package.
- Follow Your Policies: Strictly adhere to any redundancy procedures outlined in your company handbook or employment contracts.
Common Pitfalls to Avoid
- Disguised Dismissal: Terminating an employee for “poor performance” when the true reason is redundancy to avoid paying redundancy benefits. This can be easily challenged and overturned by the NICN.
- Failure to Justify LIFO Deviations: Simply stating that a junior employee is “better” is insufficient. You must have performance records, skill assessments, or other objective data to back up the decision.
- Lack of Genuine Negotiation: Presenting a “take-it-or-leave-it” redundancy package without any room for discussion may be viewed as acting in bad faith.
Conclusion
Conducting a redundancy exercise is a painful but sometimes necessary part of business. The legal framework in Nigeria is designed to ensure that this difficult process is managed with transparency, fairness, and respect for employees’ rights.
By understanding and diligently applying the principles of the Labour Act and the standards of fair labour practice established by the National Industrial Court, employers can navigate this challenging path in a manner that protects the business from legal risk while upholding the dignity of the departing employees.
Before embarking on any redundancy process, seeking professional legal advice is not just a recommendation; it is a crucial step in mitigating risk and ensuring full compliance.